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The ProShares BITO ETF, the first ETF linked to Bitcoin, has broken the billion dollar barrier in only two days after listing.

The interest reflects the massive pent up demand in the US market for ETFs that allow easy trading of the Bitcoin price.

It has been helped in part by another surge in the price of BTC, which has stimulated investors’ interest.

The ETF has been singled out as one of the most successful launches of all time.

Some concerns have been voiced within the ETF investment industry about BITO, one of the main issues being its relative expense. The BITO ETF as a 0.95% annual expense ratio, which makes it expensive when measured against other ETFs and even US mutual funds.

For long term investors in cryptocurrency, it could still make sense to buy BTC direct from a cost perspective.

Bitcoin ETF investment is about to get competitive

The issue of fees may come to the fore for ProShares, because although they now have first mover advantage, other fund managers will seek to compete against them on costs. Investors who have not yet purchased the new ETF may want to wait and see what sort of fees subsequent products levy, but then again, they miss out on the current BTC bull market.

Another good example of what competition is going to do in the Bitcoin ETF market is the Valkyrie Bitcoin Strategy ETF (NASDAQ:BTF), the second such product on the market, hard on the heels of ProShares. But the fund’s manager Valkyrie Investments has now filed with the SEC for a leveraged version at x1.25.

There is plenty of speculation as to whether the SEC will approve this any time soon, as it has taken ages for the US regulator to bless Bitcoin ETFs in the first place. A leveraged version, based on the futures market, may be asking too much.

The launch has sparked what we anticipate will be a flurry of other prospective launches by ETF managers into the Bitcoin space. In addition, the popular Grayscale Bitcoin Trust (OTC:GBTC), which has been viewed by many investors as an easy to trade proxy for Bitcoin, has filed a form 19b-4 with the SEC which will see it converted into a Bitcoin spot ETF.

Investors are piling into BITO

ProShares’ BITO seems to be picking up some impressive momentum from private traders in the US. Sadly, due to FCA regulations, cryptocurrency ETFs remain off limits for UK investors. This is prompting many investors to look at listed company alternatives which have substantial holdings in Bitcoin or exposure to the market via cryptocurrency mining activity.

It should also be noted that the new ETFs are still using Bitcoin futures; investors are not getting direct exposure to actual Bitcoin, just the price action. Companies that hold Bitcoin – such as Cypherpunk Holdings – and direct trading of BTC using the leading cryptocurrency exchanges, still seem to offer the best routes for direct exposure. It could be some time before we see a physical Bitcoin ETF on the market.

Our sources within the custody industry indicate that while many banks are kicking the tyres on this, the infrastructure of the cryptocurrency industry still presents challenges.


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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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